Passive loss limitations

New client, smart but not PAL/basis issue accountant smart.

Prior year return shows a $50k K1 passive loss carryover held for PAL.
The tax return does not indicate if this was held over for basis or passive reasons.
Same loss is on 2018 return.

Loss appears on 8582 worksheet 3.
Company accountant says basis was gone.
I'm trying to determine if this loss was allowed under basis at some point years ago, but was unallowed due to passive activity rules, or if client in fact has no basis.

Makes a difference between a 12 and 30k refund, as software is releasing the loss with final K1.

Client thinks he is not entitled to the loss based on company accountant answer, but based on the 2019 and 2018 return, I'm almost thinking this was part of his allowed basis loss at some point in the distant past.

I also do not trust the prior preparer, so they might have incorrectly allowed the loss to begin with?

Ending cap account on the final K1 is nearing 400k, which makes me think if this PAL were basis related the full 400k should appear in worksheet 3, not just the 50k portion.

Am I missing something?

Prior year return shows a $50k K1 passive loss carryover held for PAL.
The tax return does not indicate if this was held over for basis or passive reasons.

If it's a passive loss carryover then it wasn't due to basis. There was no basis limitation.

I'm trying to determine if this loss was allowed under basis at some point years ago, but was unallowed due to passive activity rules, or if client in fact has no basis.

Could be tax preparer error.

Client thinks he is not entitled to the loss based on company accountant answer, but based on the 2019 and 2018 return, I'm almost thinking this was part of his allowed basis loss at some point in the distant past.

Can the company accountant provide their basis tracking? Does the client have outside tax basis that differs?

I also do not trust the prior preparer, so they might have incorrectly allowed the loss to begin with?

Likely, but were there loans?

Ending cap account on the final K1 is nearing 400k, which makes me think if this PAL were basis related the full 400k should appear in worksheet 3, not just the 50k portion.

The final K-1 is nearing 400K ending cap account? Is it actually final? Why an ending balance? What was beginning capital on the 2020 K-1? If it's 400K, then why is company accountant saying basis is gone?

Am I missing something?[/quote]

My apologies, -400k ending ish.
Ending 2019 was -388.
That - makes a huge difference, was writing from my phone, sorry!

My apologies, -400k ending ish.
Ending 2019 was -388.
That - makes a huge difference, was writing from my phone, sorry!

The 2020 K-1 is reporting 400K ending capital account? So it's not a final K-1. What about allocated to liabilities to the partner?

Status update.
Final K-1 shows 0 as ending balance, beginning was -388k.

It appears the 50k PAL is from maybe 2011-2013 range, so I'm trying to get K-1s and tax returns from this time frame to determine if there was basis for the loss as it appears on the 8582.
Hopefully there was basis so client can get back +20k refund, so I can properly charge for all this time spent on this.

prior preparer (likely not a CPA) was $400.
oooppphhh

Yikes! -388k beginning tax basis capital account (at least it is supposed to be) that goes to zero. I wonder how that happened, and if there were other allowed passive losses from the activity that were offset against income over the years, but only ~$50K is left.

I keep reading that figure as negative 388K, not 388K.

I keep reading that figure as negative 388K, not 388K.

Yes, I corrected it. I meant it as a negative.